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My sister-in-law is buying a house with an older furnace (maybe 20 years). I own a rental property with two older furnaces (more than 20). If it is not broken, don't fix it. But - I do not want to wait until it breaks. But - I do not want to dump money into the rental property and the SIL does not have the cash for a replacement. When would you replace if money was an issue?

Interesting. I don't know of anyone that wants to replace their appliances if they dont have to. You can look at the rentals in the renters perspective, if the heat breaks they wont pay rent. Your sil well, thats another story, she has the benefit of monthly consumption savings and may get credits and rebates for high efficient equipment. Money is always an issue, look at utility financing or some other type of financing. In some cases the monthly savings on energy use is equal to your monthly finance charge.
If you can do it replace it.

The condition and the model of the equipment has not been stated, not much to go on except money issue.

Given its in safe operating condition but it shows a whole lot of miles, are you comfortable letting it go and being at the mercy of the thing?

I think we all get asked this alot. Even when the writing is on the wall, some property owners seem to glaze over in a state of denial from the money thing. They'll talk you to death searching for a way out or talk to a whole bunch of people till they hear what they want to hear.

I usually advise if the writing is on the wall, plan and change the thing out in your time frame, don't leave yourself stuck to the timing and at the mercy of a wearing out piece of equipment.

Hey, I have rental property too. I'm not real thrilled either when the roofs or electrical systems need upgrading.

"The Bitterness of poor quality remains long after the sweetness of low price is forgotten"

If the age of the furnace is a concern in your sister in law's purchase of the home, why not negoitate the price of the home to include replacement of the furnce, I know they give credit for carpet/roof replacements in come cases. As far as your rental properties are concerned if they break down and the renters move your out the cash anyway, easier to have it accomplished now if its a concern that they may go out at anytime, only a slumlord waits till something is totaly broken before they think about correcting a potentual problem.

Far better it is to dare mighty things, to win glorious triumphs even though checkered by failure, than to rank with those poor spirits who neither enjoy nor suffer much because they live in the gray twilight that knows neither victory nor defeat. (President Theodore Roosevelt)

Four reasons for changing any piece of major equipment ( furnace or a/c )
1) it cost too much to operate it - ( the electric bill being outragiously high )
2) It cost too much in repairs every year
3) It is convenient and have access to the funds ( your sisters unit, if you could, as comeone said, have the unit changed out as part of the 'deal' and therefore pay for it in the mortgage )
4) It tears up ( compressor gone, heat exchanger leak, coil leak ) and will cost more than a fan motor replacement
to repair.

I'd tell the SIL to do whatever she can to get it replaced and the cost rolled into the mortgage. If she doesn't have the money to do it now, she'll really be up a creek if it goes out next winter, when it will be cold and she still won't have the money. Better to pay for it in mortgage than on a credit card.

As for the rentals, hell, ask the tenant. "Hey, I've been thinking about having the furnace replaced. It would probably make the gas bill go down some, but it would also be a bit of a mess and disruption for you. Do you want me to go ahead right now, or wait?" If they're only staying until the end of their lease, they may prefer to wait and avoid the hassle. If they're staying long-term, they'll want you to go ahead. Either way, they'll appreciate the consideration, and the answer may help guide your decision (and give you a better idea of how long they want to stay).